Which is more adaptable in the modern business world, EVA or MVA?

Expert Solution

The modern business world is more complex and business cannot ignore any aspect completely. The EVA is economic value added and MVA is market value added. The EVA is calculated as non-operating profit after tax minus the cost of capital. The market value added is the value added to the firm over its investment by the investor. In reality when the companies are selecting projects, they focus on the EVA aspect more because in a way if the company is adding economic value then eventually that value will create market value for the company. Economic value also becomes important from the perspective of cash flow because economic value is what you are adding in excess of the cost of capital, so the focus of the firm should be on creating economic value for the firm. Essentially if we look at the definition of the market value added for the firm, the MVA is equal to the present value of all the future EVA so when the company is focusing on the creation of economic value, it will eventually create add market value for the firm.

jeff jeffy answered 2 years ago

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